Bermuda Re/insurance talks to Jeremy Cox, the new chief executive of the Bermuda Monetary Authority, about the challenges facing the Island and what the Authority is doing to address them.
What are your priorities as the new chief executive officer of the Bermuda Monetary Authority?
One of my priorities is to ensure that there is a seamless transition to the next phase of development for the Authority and Bermuda’s regulations. The Authority has been in a state of evolution as Bermuda’s independent financial services regulator for some years now. My predecessors, particularly Cheryl-Ann Lister and Matthew Elderfield, contributed immensely to the growth of the Authority and to where we are today.
Cheryl-Ann led the excellent work that established the Authority as a fully fledged regulator with responsibility for all sectors of Bermuda’s financial market. Matthew did an outstanding job leading the Authority through a period of intense change, when we had a dual priority—that of managing the impact of the global financial crisis on the Bermuda market, while keeping pace with an aggressive regulatory change agenda designed to ensure that Bermuda’s standards continue to pass muster with key international initiatives.
"I INTEND TO MAKE SURE THAT WE RAISE THE BAR EVEN HIGHER WITH REGARD TO THE AUTHORITY'S DEVELOPMENT AND THE QUALITY OF REGULATORY STANDARDS IN BERMUDA, WHILE STILL REGULATING OUR MARKETS APPROPRIATELY."
As we enter the next phase of the Authority’s growth and evolution, I intend to make sure that we raise the bar even higher with regard to the Authority’s development and the quality of regulatory standards in Bermuda, while still regulating our markets appropriately. This is critically important right now. I have been in regulation for almost 20 years, and this has been one of the most challenging periods regulators have experienced worldwide. My focus will be on making sure we have top-quality supervisors operating at the highest level. We must also ensure that while we make regulatory framework changes today, we are anticipating future changes. I see constant dialogue with counterparts overseas and contributing to international regulatory initiatives definitely as a key priority.
We are also continuing to build on the substantive work already completed towards enhancing Bermuda’s regulatory framework. This work is focused on meeting the key strategic objective of achieving regulatory equivalence for Bermuda and, specifically, broad equivalence for our insurance regulations under Europe’s Solvency II Directive. Our 2010 Business Plan, which we published recently, provides details of the areas of focus for the Authority and explains our work plan for the next 12 months. We have again set an aggressive agenda, with initiatives that are designed to ensure we maintain high regulatory standards and a framework that is effective for the Bermuda market.
What do you see as the major issues affecting regulation and how will these impact Bermuda?
Financial regulation has for some time now been in a state of evolution itself internationally, as regulatory agencies have attempted to keep pace with the growth and complexities of the markets they regulate. Regulators have had to manage the rising expectations and demands of the international regulatory environment as well as increased scrutiny of their standards. This is even more the case today in light of the global financial crisis. The debates on financial regulatory reform that are currently under way in the international regulatory arena as a consequence of the crisis will result in further changes to international standards. Local regulators, particularly those in markets with a global reach such as Bermuda, will need to address such changes effectively within their own frameworks.
The Authority is closely monitoring these debates and keeping pace with international regulatory change by being actively involved in the work of international standard setters, such as the International Association of Insurance Supervisors (IAIS). Our recent appointment to the Executive Committee of the IAIS and involvement in the work of 12 additional IAIS committees, subcommittees and work groups allows us to contribute to, and where possible, influence, international standards in development. Being internationally engaged at this level also assists us in ensuring that Bermuda’s regulatory framework remains in line with global standards, while also being practical and effective for the nature of the Bermuda market.
We believe that Bermuda’s insurance sector is in a good position with regard to the regulatory changes to come, particularly because of our preparatory work for Solvency II equivalence. Although we are also monitoring developments in other major jurisdictions, such as the US, Solvency II is the most definite and imminent regulatory test that jurisdictions will initially be subjected to. Therefore, achieving equivalence under Solvency II remains a strategic priority for the Authority this year.
In order to meet this important goal for Bermuda, we must continue to remain focused on operational effectiveness as well as framework development. In common with financial regulators worldwide, the Authority is faced with the challenge of ensuring that we have the right resources in place to enable us to deliver on our key objectives. This has been a strategic priority for us for some years now, and we have had success in increasing the depth and breadth of skilled technical talent at the Authority. Going forward, we intend to maintain this focus and continue to build our resources to ensure that we have the right people with the right skill sets to meet our goals. We will complement our existing policy, supervisory and risk analysis teams with senior high-level technical staff to support continued policy development and implementation of the expanded supervisory programmes, such as group supervision, that will result from our enhanced regulatory framework.
How prepared is Bermuda for Solvency II equivalence?
We have made significant progress on our Solvency II initiatives and will be shifting from policy development to implementation of supervisory programmes as we continue preparations for assessment. We have made considerable progress with the Solvency II Roadmap we published in 2009, which details our work plan towards equivalence under the directive. We have made enhancements to the solvency regime for commercial re/insurers and now have a new risk-based approach for the sector’s largest commercial insurers.
We have also made considerable progress in our work towards permitting the use of insurer’s internal capital models (ICM) to determine regulatory capital for selected commercial re/insurers. Last year, we published guidance detailing the various components of the Authority’s ICM framework. We are currently conducting a pilot applications and review process, and additional consultation with Bermuda market participants to further develop the ICM framework, and this will continue throughout 2010.
"Solvency II is the most definite and imminent regulatory test that jurisdictions will initially be subjected to. Therefore, achieving equivalence under Solvency II remains a strategic priority for the Authority this year."
Our 2010 Business Plan outlines additional initiatives focused on Solvency II, including progressing work on establishing a group-wide supervision framework for Bermuda’s largest insurers; setting ORSA [own risk and solvency assessment] requirements; establishing eligible capital rules; and conducting further consultation on proposed public disclosure standards for commercial insurers. The Authority also intends to introduce an Insurance Code of Conduct during the year. All of these initiatives are being developed with extensive consultation with Bermuda market participants, which underpins our policy development approach. It is important to note that our goal is to achieve broad equivalence with Solvency II and our strategy is to avoid a process of simply duplicating the directive. Instead, we plan to adapt the standards intelligently forthe Bermuda market, in close consultation with market participants. Given the work already completed, Bermuda remains among the frontrunners in jurisdictions preparing for Solvency II equivalence.
What do the framework changes related to Solvency II mean for the industry in Bermuda?
As a risk-based regulator, the Authority applies a level of supervision commensurate to the risk profile of the firms we regulate. In line with this philosophy, our insurance framework enhancements have been targeted primarily to the commercial sector. The changes to the insurance framework initially apply to Class 4 and Class 3B re/insurers, as they represent the largest firms in the sector with the highest risk profiles.
We believe the regime for captives, which remains the core business for the jurisdiction, is appropriate and we do not envision broad changes to the standards for this sector at this time. However, we are keeping abreast of international developments that may impact the captive sector and will evaluate any changes that may be required in accordance with our programme of ongoing framework enhancements.
The Bermuda market generally is very much engaged in the process of our regulatory developments. There is a mutual understanding of the importance of maintaining high standards of regulation, both for the jurisdiction and for the firms that operate within it. We are appreciative of the support and co-operation we have received from the market, and look forward to its continued participation in the consultative process as we develop Bermuda’s regulatory framework going forward.
Given the challenges that Bermuda faces in terms of competition and regulation, how optimistic are you about the jurisdiction’s prospects and the BMA’s role?
Competition is inevitable and necessary for the continued growth of the global insurance market. Bermuda has maintained its attractiveness as a domicile of choice for insurers in an increasingly competitive environment. Why? Well, one reason is that Bermuda is the only domicile that has a significant commercial reinsurance market coexisting alongside a healthy captive market, which allows for easy access to underwriting capacity by captives.
We also have a sophisticated infrastructure of professional service providers. Importantly, we have an incorporation process that, although thorough and detailed, is cognisant of speed to market, and a practical and effective regulatory framework that has been recognised by bodies such as the International Monetary Fund as being highly compliant with international standards. All of these elements add to the strength and attractiveness of Bermuda as a domicile of choice.
I believe that Bermuda still has much to offer businesses looking for a high-quality, progressive, well-regulated jurisdiction. The Authority has a pivotal role in supporting Bermuda’s position by maintaining a regulatory environment that not only adheres to international standards, but also fosters business development and innovation in the market. We have a talented and committed team that is very focused on delivering top-quality, globally compliant regulations to fulfil that significant responsibility.
Jeremy Cox is chief executive officer at the Bermuda Monetary Authority. He can be contacted at: firstname.lastname@example.org